How Wal-Mart is playing catch-up with Amazon in e-commerce.
Besides the extra cashiers and stockers Wal-Mart is hiring for the holidays, the nation’s largest retailer has a new seasonal job: manager of store pickups.When Wal-Mart announced last week that it was significantly increasing its investment in e-commerce, it tacitly acknowledged that it had fallen far behind Amazon in the race for online customers.The company also trimmed its current fiscal 2016 sales outlook to “relatively flat” from a prior projection for a gain of one-two percent, citing the strong dollar.
The founder of the 53-year-old big-box behemoth would probably be shocked to see that his “pioneering profit formula” — low operating costs and extra-discounted prices — “is now virtually impossible to maintain.” The reason? It’s no surprise, as Amazon dominates the online shopping space and, last year, beat out brick-and-mortar retailers with the convenience of shopping from home as well as highly competitive cost-cutting. While store associates on sales floors still make up the bulk of the holiday hires, more and more seasonal hiring is shifting into warehouses and back offices, experts said. Back then, Wal-Mart was a disrupter in its own right, rapidly expanding its big-box concept around the country and driving mom-and-pop stores out of business. The rise of online shopping, mobile technology and concerns about cybersecurity all are shaping the nature of holiday jobs, said Chicago-based outplacement firm Challenger, Gray & Christmas.
Walmart’s normally stable stock plunged 11 percent last week — its biggest one-day drop in 17 years — after the company predicted essentially flat sales growth for this year and a possible 12 percent drop in profit for 2016. Online-only retailer Jet jumped onto the scene in July and is the fresh face of loss leadership in online retail after dropping its $50 subscription fee, the only source of its originally planned profits. Other trends at play include one-hour delivery experiments by Amazon and Google and a need for more warehouse workers at traditional retailers. “The trend is really making itself evident this holiday season,” said Andy Challenger, a vice president at Challenger Gray. “Companies are moving away from brick-and-mortar sales operations. Between the investment necessary to compete online and the expense of higher wages, including a raise to $10 an hour for its lowest-paid workers that will cost $1.5 billion next year, Walmart’s business model “is being smashed to pieces.” Walmart CEO Douglas McMillon certainly has his work cut out for him, said Julie Creswell and Hiroko Tabuchi at The New York Times. Now, the magnitude of the task it faces has grown exponentially as e-commerce growth continues to surge globally. “With every passing year, it becomes harder and harder for Wal-Mart to compete with Amazon,” said Mark Mahaney, who covers Internet retailing for RBC Capital.
But in a shot at Amazon, he defended the advantages of Wal-Mart’s large physical store over purely online merchants, asking whether it was easier for a brick-and-mortar store to build up e-commerce or for an e-commerce player to build out stores. “You clean up your house before you invite people over”, Mr McMillon said. While Amazon might dominate the online space, Walmart is still at the top for brick-and-mortar stores, with 62% of respondents planning on heading there (narrowly beating out Target at 61% and Best Buy at 57%).
It just happens [that] during the holiday season we see a spike in it.” That’s because the last two months of the year are expected to account for about a fifth of the retail industry’s $3.2 trillion annual sales, according to the National Retail Federation. The 49-year-old, handpicked by the Walton family last year, is the “consummate Walmart company man,” having gotten his start three decades ago selling fishing tackle on a store floor. Oliver Chen, Cowen & Company retail analyst, reiterated his buy rating and price target of $77 on shares of Wal-Mart, citing the company’s announcement that it expects continued improvement in traffic and same-store sales. In damage-control mode last week, McMillon insisted that his plan to spend billions of dollars improving e-commerce and raising wages is “the right thing to do.” Wall Street, however, has its doubts.
Walmart may be the battle of shopping titans, but the struggle between these two retailers is representative of the ongoing fight for physical stores to stay relevant in an increasingly digital world. With 5,000 stores and $485 billion in annual revenue, Walmart is by far the world’s biggest retailer, but its size makes changing course “akin to turning around an ocean liner in a swimming pool.” It’s also being steamrolled online by Amazon.
Wal-Mart’s was about three times what it was 15 years before, almost $486 billion, and only a small fraction of that — 2.5 percent, or $12.2 billion — came from Wal-Mart.com. Walmart’s plan might seem strange based on the seniority of the retailer, but the longer it treats its online channels as add-ons to its well-established stores, the longer it’ll have to accept the reality that Amazon is calling the shots. And while Walmart — and other retailers that rely on physical storefronts — has been funneling money into growing its e-commerce business, that hasn’t stopped the retailer from doing big business offline. Wal-Mart estimates a 3 to 4 percent annual growth rate in the next three years, but the jury is still out on whether a change in strategy will be enough to pacify the company’s investors. Wal-Mart also announced a new share buyback program, with a fresh $20 billion earmarked for share buybacks over the next two years. ($20.60B), Dollar General Corp.
While tech-savvy shoppers may gravitate toward online shopping, with brick-and-mortar retailers offering their own online experience — often with special deals or free shipping to catch the interest of online-only shoppers — physical storefronts and online retailers are frequently competing for the same shoppers. Retailers are in the midst of hiring between 700,000 and 750,000 seasonal workers to handle the surge in business, the retail federation said in its forecast. It dropped more than 10 percent in one day last week after it said that sales this year would be flat and announced its new investments in its online business. As digital natives gain more purchasing power, online retail has to be a priority for all retailers, especially since its growth consistently outpaces traditional brick and mortar retail.
Walmart stores may be close to most shoppers in the US, but in order to pack a punch in the retail ring, it will have to get serious about online retail. If we look at past sales, we see that it’s all about offering good deals to catch consumers’ eyes and competitive price-cutting to keep them from heading to other stores. In a thoughtful post on the website Medium about Wal-Mart’s challenges, Jeff Richards, a partner in the venture capital firm GGV Capital, called this shopper the “Mobile Mom.” “The shift in retail to the Internet is a huge change, and it’s not just affecting Wal-Mart,” said Simeon Gutman, a retailing analyst for Morgan Stanley. “Every retail company is trying to manage the transition.
Another forecast, by CareerBuilder, found that 53 percent of retailers said they plan to hire seasonal workers in the fourth quarter, up from 43 percent last year. He warned that “empires age and decay in the course of three generations,” a theory that “could easily apply to Walmart.” The first generation of empire builders is wily and wise, not unlike Sam Walton.
Part of the reason for these poor sales was fewer shoppers: Stores saw 5.1 million fewer visitors on Black Friday itself and a total of 5% fewer shoppers over the holiday weekend. Nearly 40 percent of family-owned businesses are passed to a second generation, but only 13 percent make it to a third. “Pattern isn’t prophecy,” but I wouldn’t be surprised if there is “continued trouble ahead.” Amazon fought back not only with the usual gamut of Black Friday sales, but also by paying close attention to competitors’ prices and bringing their own down to match. This week I picked four items and checked each at Amazon.com and Wal-Mart.com: a Bosch stainless steel dishwasher; an UnderArmour Tactical UA Tech long-sleeve T-shirt; a Vizio 60-inch LED smart TV; and John Grisham’s latest legal thriller, “Rogue Lawyer.” As for convenience, Amazon consistently offered delivery that was much faster — and in many cases, cheaper. (Shipping is free for Amazon Prime customers who pay $99 for an annual membership.) For the UnderArmour T-shirt, for example, Wal-Mart said I could have “expedited” shipping for $25.90 (the shirt itself was $33.78), which meant I would get it in two to six days. “Standard” shipping was free, but the shirt would not arrive for a week to 10 days. At Amazon, delivery in six days was free; it also offered next-day and two-day delivery options, and the shirt was $29.99 (and even lower from affiliated retailers that sell the shirt through Amazon.) So much for price and convenience.
Yet some will have behind-the-scenes jobs, helping to fulfill Kohls.com orders that ship from stores to customers, while others will be dedicated to the retailer’s buy online, pick up in store program. Amazon, which opened a 1 million-square-foot warehouse on Broening Highway in March, said last week it’s creating 100,000 seasonal positions at its fulfillment and sorting centers across the United States, an increase over last year to meet growing demand. In Baltimore, the online giant employs more than 3,000 workers and is adding thousands more jobs for the holiday push — workers who will pick, pack and ship customer orders, said Aaron Toso, a spokesman. Amazon now offers over 200 million items on its site. (Those numbers are a snapshot; they change constantly.) Ravi Jariwala, a Wal-Mart spokesman, said it was misleading to look at only four items for Manhattan delivery. “Studies consistently show Wal-Mart.com is price-competitive on the products customers are really searching for and buying,” he said. “We don’t move our prices up or down minute to minute.” Gutman said: “Wal-Mart pricing is decent, depending on the basket of goods, but they used to be dominant on price. Consumers are demanding and getting the lowest possible prices.” Wal-Mart’s superefficient distribution system — a function of its enormous volume and geographic reach — was long the secret to Wal-Mart’s immense profitability, as Bruce C.
Other opportunities likely will be available for independent delivery services that can help brick-and-mortar stores compete. “Some people like to do their holiday shopping in person and see displays and have someone sell to them,” he said. “But as the next generation of holiday spender moves to the forefront, this is a generation that’s more comfortable purchasing online.” Greenwald of the Columbia Business School noted in his book “Competition Demystified.” And Wal-Mart still has an immense network of stores and distribution centers that, at least in theory, it can use for superior online delivery. Both Amazon and Walmart will be offering a strong selection of deals to get customers in the door, with price matching and price undercutting helping the two retailers jockey for position. You start talking about delivering individual items to consumers, and they’re out of their comfort zone.” Mahaney at RBC Capital noted that he did not cover Wal-Mart as an Internet analyst, but he said that traditional retailers have to support traditional distribution networks, and new technology to support Internet transactions. At the same time, everyone I spoke to agreed that Wal-Mart doesn’t have much choice, given that e-commerce sales continue to grow as a percentage of total retail sales.